In a small business one of the biggest challenges is simply getting your customers to pay you. It is often the primary hurdle between success and failure. But I have noticed that many small businesses unwittingly create major obstacles that severely impact their cash flow. Although most of the following are really silly mistakes that are easy to fix, I continue to see small companies make them:
- Slow to bill. For the last several years I have worked with one small company that often takes several months to invoice me. Despite the fact that I have complained, they continue to make the mistake. “I do my own bookkeeping so I’m a bit slow”, the owner tells me. “And what do you care?” he laughs, “you get longer to pay me”. But slow billing does more than just create potential cash flow issues for the small business; it can also alienate clients and lose customers. When I receive an invoice several weeks or months late, I am irritated as I now have a bill in a new budget cycle I wasn’t anticipating. I also question the professionalism of the company, and I am likely to look for a new vendor. Action step – make sure you invoice clients ASAP – preferably within 24 hours of completion of the service.
- Mix the bill with other correspondence. This is a frequent mistake in these days of electronic billing. Over the last year I have had several vendors send me e mails that contained information on the product or the service I purchased, and buried among the files was their invoice. If there is no reason for me to read the information I file it away without noticing they sent a bill. Action step – if you are billing electronically send the bill in its own email – with “Invoice Enclosed” in the subject line.
- Don’t cash the check. Again, you might think that most people would actually like it if their vendor was slow to cash the check, but this too can alienate customers. I work with a few small companies that often take weeks or even a month to cash my check. Like point one above – this says to me “unprofessional company that probably won’t make it”, and I look for a new service provider. It can also create accounting hassles for the customer as they try to reconcile accounts. The other message this telegraphs to a customer is “Don’t need to be in a hurry to pay them – as they don’t cash the check anyway”, and so in the future the customer may start paying late just because they don’t think it matters. Action step – make it a practice to deposit your checks on a daily basis. With all the new technology tools from banks (including using your smart phone to make a deposit – there is no reason to delay deposits.)
- Don’t include enough information. I frequently receive unexpected bills with little explanation, and when it happens I put them aside with the intention of contacting the company instead of paying them. It might take me days or even weeks to get the details – when otherwise I would have just paid the bill if there had been sufficient explanation. Action step – always include enough information, including PO numbers, the name of the person ordering, and any other data that could delay payment.
- Don’t send a statement. Many small companies have abandoned the practice of sending statements – but if you have not been paid subject to your terms it is a good idea send one. Often customers have lost bills (or perhaps you did not send it properly), and the statement will typically get quick action.
Often cash flow can be improved just by following the above simple steps.